We've all heard agents tell us that they can't drop their commission by x amount because they are only just covering their costs as it is, but does anyone know what this cost is likely to be? Assuming a weekly invoicing period and a client who is a late payer, how much would an agency need to make from the contractor per day to cover their costs and make the arrangement worth their while?
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Re: Agency Overheads
Depends how big they are and how cash-rich.
If they are cash-rich factoring costs nothing except lost interest. Otherwise they'll be getting a service charge of 0.6% to 3.0% of sales factored and an interest charge for the cash advances at about 0.5% over base.
Offices can be anything from £30 a week for a box in a 'business centre' to many thousands for a glass and steel edifice in a metropolis.
Then you add in salaries, bonuses, business rates, phones stationery etc.
Just like any other business - like YOURS - really. So feed the figures into a spreadsheet or some accounting software for the size of the Agency and there you, -
Re: Agency Overheads
I did some representative sums a while back to make some obscure point about agency economics. Basically if you have 100 average-rate contractors on your books, you're carrying about £150k liability per month at 8% interest pa.
Unless you have some sort of limitation deal with your clients, it would be difficult to get margins under about 6%, not allowing for your own operating costs. Hence, realistically, most commercial agencies will work between 11% and 17.5% - above that is bonus, below it is dangerous.Comment
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